In a surprising policy move, Turkey’s central bank has cut its key interest rate by 100 basis points even as inflation continues to surge. The decision reflects the government’s ongoing commitment to supporting economic growth despite persistent price pressures that have eroded purchasing power across the country. The rate cut brings Turkey’s benchmark policy rate down to a new level, signaling a continuation of its unorthodox monetary approach.
The move comes at a time when annual inflation in Turkey remains alarmingly high, driven by rising food, housing, and energy costs. Economists had largely expected the central bank to hold rates steady, given the need to stabilize prices and strengthen the lira. However, the decision to lower borrowing costs suggests that policymakers remain focused on stimulating credit and investment to bolster economic activity.
President Recep Tayyip Erdoğan has long advocated for low interest rates, arguing that they help reduce inflation and encourage production. This view runs counter to mainstream economic theory, which typically sees higher rates as a necessary tool to contain inflation. Under his administration, the central bank has followed this unorthodox path, leading to periods of intense volatility in both inflation and the Turkish currency.
The latest rate cut has raised concerns among investors and analysts about the potential impact on financial stability. The Turkish lira, which has already faced sustained downward pressure over the past few years, weakened further following the announcement. Market participants fear that continued rate cuts in an inflationary environment could deepen economic imbalances and reduce investor confidence.
At the same time, government officials have emphasized the need to support growth and employment amid global economic uncertainty. They argue that lowering interest rates will help businesses access cheaper credit, sustain domestic demand, and prevent an economic slowdown. The government also expects new trade deals and rising exports to help offset some of the inflationary effects over time.
Despite these assurances, the rate cut puts additional strain on households already struggling with the cost of living. Inflation has sharply increased the price of essentials such as food and transportation, pushing many families to the edge. Economists warn that without tighter monetary policy, inflation could remain stubbornly high for longer, eroding wages and savings.
Turkey’s central bank has pledged to continue monitoring market conditions and take necessary steps to maintain economic stability. However, the repeated cuts have led to questions about the bank’s independence and its ability to prioritize inflation control over political pressure. Many observers see this latest move as a test of how far policymakers are willing to go to balance growth with price stability.
Looking ahead, Turkey faces a challenging path. The combination of rising inflation, a weakening currency, and policy uncertainty poses significant risks to economic recovery. While lower interest rates may provide short-term relief for borrowers, they also threaten to prolong the inflation crisis that continues to weigh heavily on the population.
For now, the central bank’s decision underscores Turkey’s determination to pursue growth at all costs, even as inflation climbs. Whether this strategy will pay off or further destabilize the economy remains to be seen, but one thing is clear Turkey’s monetary experiment continues to defy global norms and keep markets on edge.
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